SRA and Legal Services Board tussle over ABS application process

Barrass: duration of application should not be equated with level of analysis

The Legal Services Board (LSB) has been critical of the length of the time the Solicitors Regulation Authority (SRA) has taken to approve alternative business structures (ABSs), it has emerged.

A recently published – albeit significantly redacted – paper that was presented to the LSB’s April meeting said that the Legal Services Act requires an “end-to-end process” for approving ABSs of six to nine months.

It found that, as of April, the SRA takes an average of seven months from the submission of a stage 2 application for a firm to be granted an ABS licence; but 20% of applicants had to wait over nine months for their licence and the longest took over 400 days.

This does not include the stage 1 high-level summary application, on which the bespoke stage 2 application form is based; the LSB found that the SRA tracked ABS applications simply using an Excel spreadsheet and so did not have sophisticated monitoring tools in place.

The LSB also said there is a general consensus that the information the Legal Services Act requires ABS applicants to produce is “extremely onerous” and that it has told the Ministry of Justice that this area is a candidate for simplification in due course.

“Nevertheless, our concern is that the SRA demands substantially more information, as a matter of routine, than that required by the Act (for example it asks for details of all non-lawyer shareholders for CRB checks rather than just those with a material interest and it requires information about each legal service being provided together with details of which professions are providing each of those services).

“This, together with uncertainty about what exactly is required and how it will be assessed, could lead to substantially more costs for applicants.”

The minutes of the meeting at which the paper was discussed also recorded concern that while the SRA’s risk assessment process was felt to be impressive, “there remained a tendency to be risk adverse”.

The LSB was critical of the clarity of information about the application process presented on the SRA’s website and of the information that went before the SRA’s own board. It claimed: “It does not appear that the SRA board was aware of the extent of these issues and backlogs until the LSB’s intervention.”

The LSB said it will continue to monitor the process and left open the possibility of taking formal action if it does not consider that progress is maintained.

Subsequent to the paper, however, the LSB has softened its tone, with a spokesman telling Legal Futures that it wants “to give the SRA the space it needs to make the improvements it knows are required and which, to be fair, they are doing”.

He added: “Yes, there is more that could be done but it does look like they are moving in the right direction. Of course, the real proof of that statement will be there for all to see in the numbers of ABS authorisations they make in the coming months and years. We wouldn’t want to try and second guess that at this stage.”

SRA executive director Samantha Barrass told Legal Futures that following changes made before Easter, those applications still in the system are there for “good, non-bureaucratic, risk-based reasons”.

She continued: “We do not share the LSB’s view that our risk methodology, while impressive, has a tendency to be ‘risk averse’. We only need to turn to the financial sector to see the costs of overly light-touch regulation.

“Our new approach to firm-based authorisation, borne from our review of the first year of licensing, supports an un-bureaucratic process, focused on the right risks. That said, we are always looking for ways to improve our approach to risk assessment, so if the LSB provide specifics on where they think we may be risk averse, we are always happy to discuss it.”

The SRA’s new firm-based authorisation process, launched in March, sees low-risk cases subject to a lower level of investigation – one ABS that involved non-lawyer partners in an existing legal disciplinary practice made it through the process in two months.

Ms Barrass said: “Duration of application should not be equated with level of analysis. In some instances for example, applications take time because applicants decide to change their business model or source of funding. In other cases applicants may refuse or be unwilling to provide necessary information.

“In these cases, the duration is not due to over-analysis, but the behaviour of the applicant. The SRA is taking steps to ensure applicants understand their obligations and respond appropriately to requests for information.”

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